More than 15,000 reclaim forms were processed during the quarter, with an average reclaim of £2,881, according to Government figures.
More than £1.4bn has now been reclaimed by people overtaxed on pension withdrawals since 2015.
Why are savers overtaxed on pension withdrawals?
Since 2015, HMRC has chosen to tax the first flexible withdrawal someone makes in a tax year on a ‘month one’ basis.
This means HMRC divides your usual tax allowances by 12 and applies them to the withdrawal. This often lands savers with shock tax bills, frequently running into thousands of pounds.
While those who take a regular income or make multiple withdrawals during the tax year should be put right automatically by HMRC, anyone who makes a single withdrawal will likely be left out of pocket.
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How to get your money back if you are overtaxed
If you are taking a steady stream of income via drawdown then you shouldn’t need to take any action, as HMRC will adjust your tax code to ensure that, over the course of the year, you are taxed the correct amount.
If you make a single withdrawal or ad hoc withdrawals and are taxed incorrectly, it is possible to get your money back within 30 days, but only if you fill out one of three HMRC forms to reclaim your money. Which form you need to fill out will depend on how you have accessed your retirement pot.
What the experts say
Jamie Clark, retirement specialist at Quilter, said: “The latest pension flexibility statistics reveal HMRC’s plans to streamline tax coding from the current tax year couldn’t come soon enough.
“HMRC’s new tax coding process should not only reduce the administrative burden on savers, but with hope it will also minimise the number of overpayments being made in the first place. Nonetheless, pension withdrawals will remain a challenge. Many people are still reliant on their pension savings to manage financial pressures, and any hasty decision to access these funds could not only result in unintended – and often unexpected – tax consequences, but they could also hamper longer-term financial plans.
“The PAYE system, while serving its purpose for regular income, has often applied emergency tax codes to one-off withdrawals, resulting in a large number of overpayments. The automation of tax code updates for new pension recipients should help alleviate this issue, but time will tell just how much of an impact it has.
“If you are considering accessing your pension, seeking professional financial advice will be key. Financial advisers can ensure you are making any withdrawals in the most tax-efficient way possible, and will also help make sure you remain on track to reach any long-term goals.”
